While it seems like we just started on our journey, we actually took a huge step LAST year, that allowed us to pay off all of our debt at once. This unconventional method is not going to be for everyone. However, if you are a spender who is having a hard time using extra money to pay down your debts, than this plan may just be for you. Using this method that I came up with at 3 am one night worked for us to become debt free.
We are officially credit card debt free!
So, how did we do it?
This plan of mine actually started almost a year ago. While it didn’t seem like we were making any progress, I knew “behind the scenes” so to speak we were. Many of you know that I am self-employed. I do not have taxes taken out of my pay, therefore have to pay in each year. My husband however works outside the home. He has always claimed just 2 dependents on his taxes. This way we were able to break even (usually). He received almost all of the money that he could each paycheck, and the little bit being withheld went to pay in my taxes after deductions when we filed.
Now, we didn’t always set up our taxes this way! When we were first married and didn’t have kids, I worked outside the home. We both ended up getting money back each year as we claimed zero. This was always a nice bonus, and I thought of it as a savings account of sorts. Now, I know… don’t let the government have anymore of your money than they should, etc. Really, I get that part, but I guess, I’ve just never seen it that way.
Fast Forward 13+ years.
Many different turns and twists in life brought us to where we were. Over $12,000 in credit card debt, with $18,000 debt on my vehicle to go with it. I have lost so much sleep trying to come up with how we were ever going to manage to pay off this debt. We make enough money, yet, we seemed to only make the minimum payments. With the number of cards with small-ish balances that we had, this was usually almost $700 each month! It had to stop. One night last Winter, after we had gotten our very modest tax return, I started thinking about the old days. Why couldn’t we use that “savings account” that we used to have, in order to get out of debt?
I got up in the middle of the night, and started working the numbers. If my husband were to claim zero again, instead of what he was at currently(6 at that time), then the IRS would take our more each paycheck. My income wasn’t going to be going up, so I wouldn’t be paying anymore in. This would basically be a way for us to save that money that we seemed to never be able to use for debt payoff.
I know… why would you let the IRS have YOUR money for a whole year? The answer is simple.
We wanted more than anything to be debt free.
This unconventional plan is something that I would have never considered a few years ago. My own income is in a more stable place now though. We had to work really hard the last year to stick to a budget, and not overspend on trips and gifts, etc. Afterall, my husband was now receiving a good amount less in take home pay. We continued making our payments on time, and did NOT use our credit cards at all this past year. That is one of the most important steps. You can’t USE your cards, and rack up more debt, if you are already taking in less income to be able to pay them off. The cards all went in our safe, and were not taken out.
In this last year, we were able to save $1200 in our emergency fund on our own, while paying off two of the smaller credit accounts. We did this by sticking to our budget, and selling things we no longer need. Both of these were steps we had outlined in our debt free plan.
We paid off every cent of credit card debt early this month with our tax return. Over $12,000 paid off in one day. I can’t begin to describe how that felt! We have since gone back to our “normal” tax deductions, and are working now on building up our savings account, as well as paying off my vehicle. (While some would say to trade it in, and get rid of the loan, we owe too much on it for that to be worth it and it is my business vehicle)
We did it!
As a celebration on this step towards becoming debt free, we did also take a Spring Break trip with our family. In the past the only trips we have ever taken were to visit family. So, this was a great way to be able to spend time together as a family, making memories, and celebrating all that we accomplished by sacrificing things this past year. I hope to share with you how we were able to go on that Debt Free Vacation, next week!
There you have it. My middle of the night, crazy, unconventional way that we were able to finally get rid of our debt. It was a hard year with less income, but in the end we accomplished our goal, and even more!